At its meeting today, the Board decided to leave the cash rate unchanged at 4.75 per
cent.

The global economy is continuing its expansion, but the pace of growth slowed in
the June quarter. The supply-chain disruptions from the Japanese earthquake
and the dampening effects of high commodity prices on income and spending
in major countries have both contributed to the slowing. The banking and
sovereign debt problems in Europe have also added to uncertainty and volatility
in financial markets over recent months.

A key question is whether this more moderate pace of growth will continue. Commodity
prices have generally softened of late, though they remain at very high levels.
Despite the challenging international environment, the central scenario for
the world economy envisaged by most forecasters remains one of growth at,
or above, average over the next couple of years. A number of countries have
tightened monetary policy but, overall, global financial conditions remain
accommodative and underlying rates of inflation have tended to move higher.

Australia's terms of trade are now at very high levels and national income has
been growing strongly, though conditions vary significantly across industries.
Investment in the resources sector is picking up strongly in response to
high levels of commodity prices and the outlook remains very positive. A
number of service sectors are also expanding at a solid pace. In other areas,
cautious behaviour by households and the high level of the exchange rate
are having a noticeable dampening effect. The impetus from earlier Australian
Government spending programs is now also abating, as had been intended.

A gradual recovery from the floods and cyclones over the summer is taking place,
though the resumption of coal production in flooded mines continues to proceed
more slowly than initially expected. The recovery will boost output over
the months ahead, and there will also be a mild boost to demand from the
broader rebuilding efforts as they get under way, but growth through 2011
is now unlikely to be as strong as earlier forecast. Over the medium term,
overall growth is still likely to be at trend or higher, if the world economy
grows as expected.

Growth in employment has moderated over recent months and the unemployment rate has
been little changed, near 5 per cent. Most leading indicators suggest that
this slower pace of employment growth is likely to continue in the near term.
Reports of skills shortages remain confined, at this point, to the resources
and related sectors. After the significant decline in 2009, growth in wages
has returned to rates seen prior to the downturn.

Credit growth remains modest. Signs have continued to emerge of some greater willingness
to lend and business credit has expanded this year after a period of contraction.
Growth in credit to households, on the other hand, has slowed. Most asset
prices, including housing prices, have also softened over recent months.

Year-ended CPI inflation is likely to remain elevated in the near term due to the
extreme weather events earlier in the year. However, as the temporary price
shocks dissipate, CPI inflation is expected to be close to target over the
next 12 months. In underlying terms, inflation has been in the bottom half
of the target range, though a gradual increase is expected over time.

At today's meeting, the Board judged that the current mildly restrictive stance
of monetary policy remained appropriate. In future meetings, the Board will
continue to assess carefully the evolving outlook for growth and inflation.